November 4, 2021 at 7:19 pm #71348
IRS notice 2007-7 indicates that an inherited IRA distributions can be part of the annual QCD if the beneficiary is at least 70 1/2 when the contribution is made. A couple of questions on this….
1. Does it matter who the beneficiary is?
2. Does this still apply under the SECURE Act for Designated Beneficiaries who do not have an RMD until the 10th year following the year of death ?
3. If so, is the amount of the QCD from the inherited IRA combined with QCD amounts from the beneficiaries other TIRA(s) to fall under the $100K limit?
4. Would an inherited SEP and SIMPLE and SARSEP IRA qualified since the owner is no longer able to contribute, or if these exists, to qualify, must the balances be rolled into a single Inherited IRA first?
BruceMNovember 5, 2021 at 3:37 am #71350
1) Bruce, it does not matter who the beneficiary is, but it must be an individual, not an entity like an estate.
2) A beneficiary of age can do a QCD whether there is an RMD due or not, but the tax benefit is greater if it offsets RMD taxable income. If there is no RMD due to the 10 year rule, a QCD will be tax free, but there is no current year tax benefit. However, the account balance will be reduced by the QCD and therefore future taxes would be reduced.
3) Yes, the 100k QCD limit applies to all QCDs whether from owned or inherited IRA accounts, ie. to all QCDs reported under the same SSN.
4) QCDs from these various IRA types are allowed as long as the plan is not “on going” and therefore did not receive any contributions for the tax year. QCDs can be made without regard to IRA type, but the total limit is 100k.November 6, 2021 at 4:23 pm #71359
A couple of follow-up questions
1. If an IRA owner has $100,000 TIRA of which $20,000 is basis and the RMD is, say $5,000, of which $1,000 is basis, how will this be treated if the IRA owner makes a QCD of the entire $5,000? I would imagine $4,000 will represent the QCD and $1,000 will simply be a charitable contribution that can be deducted if the IRA owner itemizes deductions.
2. If I worked in 2020 and so made a deductible TIRA contribution of $1,000 and this year I’m 72 and make a $1,400 QCD, does the rule require me to reduce the QCD to $400, with the other $1,000 treated as ordinary income and so eligible to be taken as a charitable contribution on schedule A?
BruceMNovember 6, 2021 at 6:54 pm #71361
1) It would still be a 5000 QCD since QCDs are deemed to apply to pre tax IRA values until they are exhausted (similar to a rollover to a qualified plan). Instead, if the IRA owner made a QCD of 82,000 which would have to include 2000 of basis, the result is as you anticipated. There would be a QCD of 80,000 and a non taxable distribution of 2000 reported as made to the IRA owner, that the IRA owner contributed to charity. That 2000 could be itemized if the IRA owner was able to itemize. Note that QCDs are not reported on Form 8606 as distributions since the 8606 would pro rate the distribution.
2) This question refers to the fairly punitive anti abuse provision of the Secure Act which offsets QCDs by the amount of any deducted TIRA contribution made in the year taxpayer turned 70.5 or later. You are correct that your 1400 QCD would be reduced by that 1000 deduction to 400. You would report a 400 QCD with a 1400 taxable distribution. If you can itemize, you could itemize that 1000 distribution on Sch A.November 7, 2021 at 4:30 pm #71367
Thanks. Yes, I didn’t realize the QCD is not prorated.
In my reading, it also says a QCD can be made from a Roth under ‘special circumstances’. Hmmmmm. I take it that means a Roth that is not yet qualified….meaning a Roth not yet held 5 years, correct, as the 59 1/2 would be a moot point? So, if an individual retired at age 68 and rolled over a large Roth component of his 401(k) to his first Roth IRA at that time and made a QCD this year at 72. the QCD amount would come from the earnings on the past contributions, correct?
Although this is theoretically possible, I suppose, why would anyone do this with a Roth that’s going to become completely tax free at the end of the 5 year holding period?
BruceMNovember 7, 2021 at 11:03 pm #71368
Technically, a QCD from a Roth would be limited to gains in a NQ Roth IRA, which is a Roth that has not attained both 5 years and age 59.5. Practically, I have not heard of anyone doing a QCD from a Roth IRA which does not have taxable RMDs such that a QCD would offset the RMD taxes. Inherited Roth IRAs also have mostly met the 5 year holding period, and even if not yet met, basis would be coming out first, and not eligible for QCDs.
If the Roth 401k was qualified when rolled over, the Roth IRA gains would be limited to those that were generated in the Roth IRA, but if the Roth 401k was not qualified due to not having been held 5 years at the time of the rollover, the gains in both the Roth 401k and the Roth IRA would be eligible for QCDs.
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